The Headline Numbers Don't Tell the Story of General Electric's Quarter

The government shutdown and the threat of default appear to be all but forgotten by the stock market, which already hit a record high yesterday. This morning, the S&P 500 is up 0.4%, while the price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) is flat, as of 10:10 a.m. EDT.

On the headline numbers alone, General Electric's (NYSE: GE  ) third-quarter results don't look that impressive. Revenue and net income fell by 1% and 9%, respectively, versus the year-ago quarter; earnings per share were flat.

However, the revenue shortfall was driven by a planned shrinking of assets at GE Capital and an unfavorable foreign-exchange effect of $132 million. Neither of these should concern investors: The former is consistent with a long-term goal of rebalancing the company's earnings away from its financing subsidiary; the second is out of the company's control.

Furthermore, EPS of $0.36 topped Wall Street's expectations by a penny (incidentally, these results must have been heavily telegraphed by the company -- Yahoo! Finance has 14 analysts submitting estimates with a range of $0.35 to $0.36).

Investors are focusing on other positive areas, too, including the conglomerate's orders across its industrial businesses, which grew at a healthy 29% clip to $25.7 billion thanks to broad growth worldwide. General Electric also said it's on track to hits its goal of increasing the operating margin of its industrial segment to 15.8% this year from 15.1% in 2012. All told, these factors (among others) are enough for investors to send the shares up 1.9% this morning.

Yesterday, Dow component Goldman Sachs reported that net revenues in its fixed income, currency, and commodities unit fell a stunning 44% year on year to $1.25 billion, contributing to a 20% drop in the bank's total revenue. That decline had Goldman Sachs (unusually) bringing up the rear relative to its peers in bond trading. However, this morning Morgan Stanley (NYSE: MS  ) reported exactly the same percentage drop in fixed income and commodities sales and trading revenue, confirming that all the top banks suffered from slowing bond-market activity -- particularly the pure-play investment banks.


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